Geojit - Zensar Tech

ZTL, in which RPG Group now holds 70% stake, is all set for robust growth in future. It is likely to end FY 2007 with revenues of Rs. 580 crore (+) and Net profit of Rs. 54-55 crore, as against earlier guidance of Rs. 550 crore sales and PAT of Rs. 50 crore. For FY 2008, company expects Rs. 850-910 crore revenues (minimum Rs. 850 crore) and PAT % of 10% (i.e. PAT of Rs. 85-91 crore). Beyond that, company is placed to give 30-35% growth p.a. for next 2-3 years :-

© Under First Source Strategy, ZTL will be grooming small to medium sized companies (sales <>

© With recent acquisition of ThoughtDigital in USA ZTL has become among the top10 Oracle practicers in world and 6 largest in India. ZTL is now very well placed to leverage ThoughtDigital acquisition with its marquee customers and back-end outsourcing from India. Company’s deep knowledge in Oracle Practices over the years should help in capitalizing tremendous growth opportunities here (generally services around Oracle package is at 2-3 times the original license fee) and launch of global brand – thought Digital in this space. Company intends to increase its head count from present 1,000 to 3,000 over next 2-3 years in Oracle practice. Oracle has selected ZTL as the exclusive partner for 2 manufacturing segments – auto ancillary and Hitech Discrete manufacturing for North America.

Having acquired thorough knowledge in retail vertical thru ERP implementation for RPG Retail, ZTL has built EPR on its own for dairy business (Ist time in India and likely to tie up with Mother Dairy), which has huge potential.

© ZTL’s niche business segment of Innovative Technology Solutions has now reached an inflexion point with major upscaling expected going forward. Company expects revenues of US $ 100 million from this by FY 2010 (US $ 28 million in FY 2007). Reusability of framework tools and components developed here over the years (a type of products) should enhance productivity at ZTL since very little customization is required. These tools can also be effectively used in new clients under global outsourcing, thereby cutting down man power.

© JV with Japanese company EZA, which has presence in the niche areas of Media & Entertainment and SIP providing Zensar opportunity of Technology / Knowledge transfer. EZA has good customer base and ZTL can leverage this for growth in Japan. In fact top 3 gaming companies of the world are ZTL’s clients.

© BPO – Home Depot is the largest customer in BPO segment. In a way, Home Depot is FTO in BPO. ZTL is the only company rendering BPO services to Home Depot and that too in core area of supply chain. In fact FTO to also help in scaling up BPO business in niche areas with basic infrastructure already being there.

© Decline in attrition rate by 3% in FY 2007 with core managerial team continuing to be in place.

Thus, it is set for robust growth with incubation gestation now over in respect of Enterprise Application Practices and Innovation Technology Practices.

At CMP of Rs. 240/-, share is trading at 10.4 times FY 2007 expected EPS of Rs. 22/- and 6.6 times FY 2008 expected EPS of Rs. 37/-. In view of above mentioned factors, we recommend to “BUY” the share at CMP notwithstanding somewhat adverse perception for RPG group in the market with good possibility for re-rating the stock.